Introduction to Governmental Accounting

1. Introduction to Governmental Accounting Presented by Margie R. Toney, CPM, CGFM Finance Director, Alabama Dept. of Labor

2. Overview • Government: Authorities, Responsibilities, and Characteristics • Government Management Cycle • GASB • Fund Accounting and Fund Categories • Revenue and Expense Recognition • Budgetary Accounting • Financial Reporting Objectives & Characteristics • CAFR • Other reporting Montgomery Chapter AGA

3. Our Government • Government Sovereignty • Highest level of power/freedom from external control • Power derived from constitutions, charters, etc… • BUT…accountable to citizens through popular sovereignty • Levels of Government • National, state, local, special-purpose, quasi-governmental • Branches of Government • Legislative – passes laws/ordinances • Executive – administers laws • Judicial – interprets laws, exercises judicial review Montgomery Chapter AGA

4. Authorities and Responsibilities of Government • National • National defense, foreign relations, interstate commerce, federal courts, housing, health care, and educational opportunity • State • Public safety, property laws, protection of private property, education, marriage laws, commercial rules, and licensing • Local • Building codes, permits, prop. taxes, police, & fire Montgomery Chapter AGA

5. Characteristics of Government • Absence of a profit motive • Financed by citizens, donors, and others who do not expect to receive benefits in proportion to the resources provided • Raises revenue primarily through taxes • No shareholders • Relies on budget process to allocate resources • Most directed/managed by elected officials Montgomery Chapter AGA

6. Government Management Cycle • Planning • Programming • Budgeting-provides resources and controls • Operations • Accounting • ensures compliance with authorized purpose, time, and amount • provides data needed for reports • Reporting-communicates accomplishments and resources expended (demonstrates accountability) • Auditing Montgomery Chapter AGA

7. GASB • Governmental Accounting Standards Board,1984 • “The collective mission of the GASB, the FASB, and the FAF is to establish and improve financial accounting and reporting standards to provide useful information to investors and other users of financial reports and educate stakeholders on how to most effectively understand and implement those standards.” • Researches, develops and issues accounting standards for state and local governments (SLGs) • Jurisdiction between GASB and FASB – FASB standards don’t apply to SLGs unless GASB says so • The AICPA recognizes GASB as the body that establishes generally accepted accounting principles (GAAP). Montgomery Chapter AGA

8. Fund Accounting • Self-balancing set of accounts (“checkbooks”) • “A fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources…related liabilities, etc..” • Fund has own accounting resources, liabilities, operating activity, and accounting records • Different funds are used for different purposes • Established in recognition of grant or contract provisions, constitutional provisions, legislation, discretion of government, etc… Montgomery Chapter AGA

9. Fund Categories and Uses • Governmental Funds • General • Special Revenue • Capital Projects • Debt Service • Permanent • Proprietary Funds • Enterprise • Internal Service • Fiduciary Funds • Agency • Pension • Trust Montgomery Chapter AGA

10. Revenue and Expense Recognition • Governmental Funds • Current financial resources measurement focus, modified accrual basis • Revenue (inflows of resources) must be measurable and available • Expenditures are recognized when a liability is incurred, if payment requires the use of current financial resources • Proprietary, Fiduciary Funds • Economic resources measurement focus,accrual basis • Revenue recorded when earned or due to the government • Expenses are recorded when goods or services are consumed, regardless of when payment is made Montgomery Chapter AGA

11. Budgetary Accounting • The budgetary process is the primary control device in government • The budgetary equation: Estimated beginning available fund balance (+) Estimated revenues (=) Amount available for appropriation (-) Appropriations (=) Estimated ending available fund balance Montgomery Chapter AGA

12. Budgetary Accounting (2 of 3) • Govt’s at the federal, state and local levels generally integrate budgetary accounts with their proprietary or financial accounting systems • Proprietary/financial systems produce the financial statements that are subject to audit • Budgetary accounting systems are prospective in nature • Proprietary/financial systems are retrospective in nature Montgomery Chapter AGA

13. Budgetary Accounting (3 of 3) • Obligations and encumbrances are budgetary control tools • A purchase order is an encumbering or obligating document, used to ensure that funds are available prior to entering into agreements Montgomery Chapter AGA

14. Financial Reporting Objectives • Provide information to assist users in • Assessing accountability • Evaluating operating results • Assessing the level of services the government can provide • Assessing the government’s ability to meet obligations • The users • The citizenry at large, including media and public interest groups • Legislative and oversight bodies • Investors and creditors Montgomery Chapter AGA

15. Characteristics of Effective Financial Reporting • Understandability • Reliability • Relevance • Timeliness • Consistency • Comparability Montgomery Chapter AGA

16. External Financial Reporting • Minimum requirements • Management’s Discussion and Analysis (MD&A) • Required supplementary information • Appears before the BFS • Basic financial statements • Auditor expresses opinions on these only • Includes notes • Required supplementary information • Comprehensive annual financial report (CAFR): recommended but not required • Popular reporting – no standards • Other reporting Montgomery Chapter AGA

17. Basic Financial Statements • Government-wide financial statements • Provide information about the government as a whole except for fiduciary activities • Two required government-wide statements • Statement of Net Assets • Statement of Activities • Fund financial statements • Presented for governmental, proprietary, and fiduciary funds • Notes – for information that is necessary for fair presentation of statements but not displayed on the face of the statements • Specific transactions may require additional disclosures Montgomery Chapter AGA

18. Comprehensive Annual Financial Report • The CAFR is the government’s official annual financial report. • Consists of three sections: • Introductory – Letter of Transmittal • Financial – Auditor’s report, management’s discussion and analysis, basic financial statements, required supplementary information, combining statements • Statistical – historical trends, demographics, etc. Montgomery Chapter AGA

19. Other reporting • Popular reporting – useful and user-friendly, for citizens • Other external reporting – e.g., to grantor agencies • Internal reporting – to executive and legislative branches, program managers, etc… Montgomery Chapter AGA

20. Conclusion “The Board believes that financial reporting plays a major role in fulfilling government's duty to be publicly accountable in a democratic society. Public accountability is based on the belief that the taxpayer has a "right to know," a right to receive openly declared facts that may lead to public debate by the citizens and their elected representatives.” www.gasb.org/st/concepts - cited 3/7/17 Montgomery Chapter AGA